As a FERS participant, you can retire relatively young with a full, immediate FERS pension (annuity) and you’re eligible for Social Security as early as age 62. Even better, when it comes to your traditional Thrift Savings Plan (TSP), you have a wide range of distribution options. However, without a well-thought-out strategy for managing your three streams of retirement income, you may face financial challenges over a 30-year-long retirement.
Working Longer To Increase Your Monthly FERS Pension
Depending on the year you were born, you can retire with an immediate FERS annuity between age 55 and 57 if you meet the creditable years service requirements. Then again, just because you can retire relatively young it may pay to work longer. When you work until age 62 (or older) with a minimum 20 years of creditable service, you’re eligible for the 10% FERS Annuity Bonus. The FERS bonus is based on your high-3 salary multiplied by 1.1% instead of the 1% formula. This works out to a 10% raise in your monthly pension for the rest of your life.
“If longevity runs in your family, waiting until 70 for a larger Social Security benefit makes sense because living longer costs more money.”
Timing Your Social Security To Maximize Your Benefit
Your Full Retirement Age (FRA) is when you’re eligible for 100% of your earned Social Security benefit based on your birth year. However, when you delay taking your benefits until age 70, you earn credits that continue to increase your Social Security by 8% for each year beyond your FRA.
For example, if you were born in 1960 your FRA is 67. Waiting the extra three years then filing at 70 means you’ll receive 124% of your earned benefit. If longevity runs in your family, waiting until 70 for a larger Social Security benefit makes sense because living longer costs more money.
Understanding All Of Your TSP Distribution Options
You can choose monthly, quarterly or annual TSP installment payments at a fixed dollar amount as long as it’s at least $25. You also have the option to have fixed installments withdrawn from your Traditional balance first or from your Roth balance first.
If you’re worried about outliving your nest egg, the TSP can calculate your installments based on IRS Life Expectancy tables. Then again, you can let your TSP account grow until Required Minimum Distributions kick in at age 73. Other options include a rollover to a qualified retirement plan or using your TSP balance to purchase a lifetime annuity.
Keep in mind that there are pros and cons to all of these strategies. Before you make any decisions, touch base with an FRC® trained advisor who fully understands your federal retirement benefits.
